Ambac, Moody’s Say Cities Lack Evidence in Antitrust Lawsuit

March 21 (Bloomberg) -- Lawyers for Ambac Financial Group,
Moody’s Corp. and other bond insurance and credit ratings
companies told a California judge that cities lack evidence to
pursue an antitrust and negligence lawsuit against them.

The companies are fighting claims filed in 2008 alleging
they conspired to force local governments in California to
purchase insurance they didn’t need. Lawyers for the
municipalities say the ratings companies and bond insurers
schemed to maintain high credit ratings for the insurers and
perpetuate a dual credit-rating system that punished cities with
lower ratings than corporate entities.

Floyd Abrams, a lawyer representing McGraw-Hill Cos.’s
Standard & Poors unit, said the cities don’t have sufficient
evidence to overcome the defendants’ claims that the lawsuit is
an attempt intimidate or censor them.

“We don’t think they have come close,” Abrams said in the
morning session of a day-long hearing today in state court in
San Francisco.

Abrams also is representing S&P in a U.S. Justice
Department lawsuit filed Feb. 4 alleging the company inflated
rankings for mortgaged-backed securities and downplayed their
risks to maximize profits.

Alleged Conspiracy

Judge Richard Kramer in San Francisco last year refused to
toss claims in the lawsuit, originally filed by San Francisco,
Los Angeles and several other California municipalities that
allege a conspiracy among the ratings companies and bond
insurers. The cities said the conspiracy cost them millions of
dollars in fees to refinance bonds after the collapse of the
subprime mortgage market.

Cities bought insurance to enhance the credit ratings of
their bonds, while the ratings companies were giving their
highest ratings to the risky subprime mortgage-backed securities
the bond insurers were backing, according to the complaint. When
the mortgage crisis occurred in 2008, the bonds became
unmarketable and cities racked up millions in fees to support
the bonds, said Nanci Nishimura, an attorney for the
municipalities.

The defendants “were too rich to care,” she told Kramer.

Kramer questioned whether the plaintiffs had enough
evidence to show that the bond insurers and ratings agencies had
an agreement. It’s not enough to show that the companies all did
the same thing with their ratings or they had a profit motive to
give the high ratings, he said.

“You need to show sufficient evidence that they agreed to
do something together, not that they have a motive to do it,”
Kramer said.